Key Takeaways
- North Carolina requires the Buyer's Guide for annuities to be delivered at or before application
- Contract summary must explain all fees, charges, and surrender penalties
- Illustration requirements apply to fixed indexed and variable annuities
- Disclosure must include information about death benefits and annuitization options
- Producers must explain the difference between qualified and non-qualified annuities
Annuity Disclosure Requirements
North Carolina has specific disclosure requirements for annuity sales to ensure consumers understand these complex products before purchasing.
Buyer's Guide Requirement
North Carolina requires delivery of a Buyer's Guide for all annuity sales:
| Requirement | Details |
|---|---|
| Timing | At or before application |
| Format | Written document |
| Content | General annuity education |
| Purpose | Help consumer understand product type |
Buyer's Guide Contents
The Buyer's Guide must explain:
- What an annuity is and how it works
- Different types of annuities
- How annuities differ from other investments
- Tax implications
- Questions to ask before buying
Contract Summary Requirements
Beyond the Buyer's Guide, North Carolina requires a contract summary that includes:
Fee and Charge Disclosures
| Item | Must Disclose |
|---|---|
| Surrender Charges | Schedule and duration |
| Administrative Fees | Annual or monthly charges |
| Mortality & Expense | M&E charges for variable annuities |
| Fund Expenses | Subaccount expenses |
| Premium Taxes | If applicable |
Product Feature Disclosures
- Death benefit provisions
- Annuitization options
- Free withdrawal provisions
- Guaranteed minimum benefits (if any)
- Interest crediting methods (for fixed indexed)
Exam Tip: North Carolina requires both a general Buyer's Guide AND a contract-specific summary. The summary must detail all fees and charges.
Illustration Requirements
For fixed indexed and variable annuities, North Carolina requires illustrations that show:
Fixed Indexed Annuity Illustrations
| Element | Requirement |
|---|---|
| Guaranteed Values | Minimum guaranteed at each duration |
| Non-Guaranteed Values | Based on hypothetical returns |
| Cap and Participation | Current rates clearly disclosed |
| Floor Protection | Minimum crediting rate |
Variable Annuity Illustrations
- Hypothetical performance scenarios
- Impact of fees on accumulation
- Guaranteed minimum death benefit examples
- Living benefit rider illustrations (if applicable)
Qualified vs. Non-Qualified Disclosure
Producers must explain the tax implications:
Qualified Annuities
- Funded with pre-tax dollars (IRA, 401(k) rollovers)
- All distributions taxed as ordinary income
- Subject to Required Minimum Distributions (RMDs)
- 10% penalty for withdrawals before age 59 1/2
Non-Qualified Annuities
- Funded with after-tax dollars
- Only earnings taxed upon withdrawal (LIFO)
- No RMDs during accumulation
- 10% penalty for earnings withdrawn before 59 1/2
Exam Tip: Producers should explain that putting after-tax money into a qualified annuity may not provide additional tax benefits since the money would already be in a tax-advantaged account.
When must the annuity Buyer's Guide be delivered in North Carolina?
What is the tax treatment of distributions from a qualified annuity?
Which of the following must be disclosed in an annuity contract summary in North Carolina?